Tuesday, October 18, 2011. 9.25 a.m. This morning it was reported that the U.S. producer price index, measuring inflation at the producer level jumped an unexpected 0.8% in September, double the consensus forecast. And even with the cost of food and energy removed, the core rate was up 0.2%, also double the forecasts. While the [...]

Tuesday, October 18, 2011. 9.25 a.m.

This morning it was reported that the U.S. producer price index, measuring inflation at the producer level jumped an unexpected 0.8% in September, double the consensus forecast. And even with the cost of food and energy removed, the core rate was up 0.2%, also double the forecasts.

While the Fed says it looks at the core rate since the cost of food and energy are ‘volatile’, it’s the overall inflation rate, including the cost of food and energy that squeezes consumers’ pocketbooks.

Rising inflation would put the Fed in a serious box, since the historical cure for inflation is to raise interest rates. That flies in the face of the slowing economy, the historical cure for which is to lower interest rates to stimulate more spending and boost the economy.

China, Brazil, and India were the first to see inflation pressures rising, and more than a year ago began aggressively raising interest rates to slow it down. In the process they have also slowed their economic growth.

And that’s the challenge the U.S. Fed also faces, except the Fed faces the challenge with the U.S. economy already very weak, while the economies of China, Brazil, and India were super strong when they began raising rates, giving them more room to move against inflation.

It will no doubt make for more lively discussions among members of the Fed’s FOMC, since there were already some Fed governors opposed to ‘operation twist’ saying the Fed needed to worry more about the threat of inflation.

It was also reported this morning that the Consumer Price Index in the United Kingdom jumped 5.2% in September over the same period last year, matching a record set in September 2008.

Trading Range Still In Place?

Is it the seesawing of hopes for resolution of the eurozone debt crisis that’s creating the short-term volatility? Or is it the technical support and resistance levels of the trading range that’s been in place since August?

Either way, a breakout from the range in one direction or the other will come soon. Trading ranges don’t last forever, and European officials will have to either come up with a viable plan that will relieve the market, or fail to do so.

Technical analysis and technical indicators have become very interesting to say the least.

Subscribers to Street Smart Report: In addition to the charts and signals in the premium content area of this blog, there is a very important hotline from Saturday, and the new issue of the newsletter will be available online in the subscriber area of the Street Smart Report Online tomorrow.

Has downside volatility returned? After the most positive 2-week in a couple of years the market was back to the downside in a very ugly day. The market was down from the open, and closed just about on its low, with the Dow down 247 points. But volume remained very light, with only 0.9 billion shares traded on the NYSE, no sign of panic selling, still just traders try to trade the range.

The Dow closed down 247 points, or 2.1%. The S&P 500 closed down 2.1%. The NYSE Composite closed down 2.2%. The Nasdaq closed down 2.0%. The Nasdaq 100 closed down 1.6%. The Russell 2000 closed down 3.3%. The DJ Transportation Avg. closed down 2.8%. The DJ Utilities Avg closed down 0.1%.

Gold closed down $6 an ounce at $1,676.

Oil closed down $0.42 a barrel at $86.38.

The U.S. dollar etf UUP closed up 0.6%.

The U.S. Treasury bond etf TLT closed up 1.7%.

Yesterday in European Markets.

Markets across Europe also closed down yesterday. London closed down 0.5%. The German DAX closed down 1.8%. France closed down 1.6%.

European markets are off earlier lows, now mixed. The London FTSE is down 0.5%. Germany’s DAX is up 0.6%. France’s CAC is down 0.9%

Oil is unchanged at $86.79 a barrel.

Gold is plunging $28 an ounce at $1,648 an ounce.

This morning in the U.S. Market:

This week is a fairly heavy week for potential market-moving economic reports, including reports from the housing industry we haven’t heard much from lately. The reports will include the Consumer Price Index, New Housing Starts, Existing Home Sales, and the Phila Fed Mfg Index. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.

Yesterday’s reports were that the Empire State (NY) Mfg. Index remained negative in October for the 5th straight month, but did rise fractionally, from minus 8.8 in September to minus 8.5 in October. And Industrial Production was up 0.2% in September, but August was revised down to zero from the previously reported gain of 0.2%.

This morning’s report was that that the Producer Price Index jumped 0.8% in September, double the forecasts, and the core rate was up 0.2%, also double the estimates.

But the pre-open indicators have come well off their lows.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 25 points or so in the early going, meaningless as to direction by the close.

Subscribers to Street Smart Report: In addition to the charts and signals in the premium content area of this blog, there is a very important hotline from Saturday, and the new issue of the newsletter will be available online in the subscriber area of the Street Smart Report Online tomorrow.

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I’ll be back Thursday morning with the regular Thursday morning post, at 9:25 a.m. (This blog appears every Tuesday, Thursday, and Saturday morning!).